The Next Five Years: Three Reasons We Must Adapt
When is an organization no longer a ‘start-up’? Is it age, size, or some other acquired wisdom that moves it out of the ‘test and experiment’ stage into the ‘institutional’ one? When is it time for an organization to change or adapt? Do we revisit strategies every 3 or 5 years because they are ‘round numbers’? Or do we watch the world around us and continuously react? How do you know when to grow?
Five years ago, Open Road Alliance was founded to help nonprofits overcome unexpected obstacles that threatened impact. While “Keeping Impact on Track” is still our core mission, our execution of that mission has evolved. Our work has expanded to include the promotion of risk management in the sector; we’ve learned some hard lessons about the constraints and challenges of “giving money away;” and we’ve explored new approaches to investing for impact, including recoverable grants and loans.
We have grown organically and incrementally as we tested, learned, and affirmed our strategy and interventions to keep impact on track.
And, as we’ve evolved, we've been watching the world around us evolve too. We’ve taken note of announcements from Ford and other traditional foundations to commit larger and larger amounts of funds to impact investments. We’ve also followed along as traditional finance and even hedge funds like BlackRock – have equally expanded their financial offerings and corporate philosophies to value social returns alongside financial ones.
Most importantly, we’ve been watching and listening to our own partners and the nonprofits and social enterprises they run. What we’ve seen and heard is this:
1. ‘We’re not in Kansas Anymore’: Nonprofit models, financing options, how we measure impact, who we partner with – everything about generating social impact is in a rapid state of flux. Nonprofits that have had charity status for decades are now finding ways to generate earned income, while new social entrepreneurs are making calculated decisions about whether to incorporate as a 501c3, LLC, B-Corp, or some new hybrid structure. The implications of these choices affect financing options, staffing, taxes, talent management, who your partners are, and even where a new Founder sets up shop. Simply “starting a nonprofit” is no longer the default for solving a social or environmental problem. As new organizations invent new wheels for social impact, established organizations are rushing to reinvent their own, lest they miss out on new revenue, partnerships, or approaches. Few of our nonprofit partners look the same today as they did five years ago and everyone is trying to navigate and find their place in the shifting terrain.
2. What’s in a Name?: Our vocabulary is not keeping pace with the change. As one social entrepreneur put it: “I generate more revenue than expenses, but I’m legally incorporated as a 501c3 because I founded this organization for the purpose of social impact. Financially, I’m not a ‘nonprofit,’ nor am I ‘not-for-profit’ as generating a profit is what keeps me sustainable and is necessary for generating the impact! But because I am a 501c3, I’m not considered a ‘business’ either.” Our current labels are insufficient to encapsulate the mission, model, and multiple bottom lines of an increasing number of organizations. On a macro-level, the distinctions between the “philanthropic” and “corporate” sectors are blurring.
3. Show me the money!: Whatever label you use to describe them, social impact organizations need more money, in new ways, from more sources. Socially-minded LLCs are going to foundations for start-up investments, and nonprofits with strong revenue streams want to access more traditional forms of finance. Yet even with these developments, the demand for impact-oriented capital is greater than the current supply.
The Open Road Ahead
Given the rapid pace of change, there are few specifics that one can predict for the next five or ten years. Yet, there is one thing we can be certain of, and that is uncertainty. The world will remain unpredictable and as more and more nonprofits, social entrepreneurs, and companies seek social impact, there will be a growing need to keep that impact on track. There will be a growing need for Open Road.
Philanthropy loves to see initiatives scale, but we rarely scale our own operations. Funders encourage, praise, prod, and require their grantees to grow and replicate, but few foundations follow suit. Instead, we maintain stagnant budgets and fixed approaches to financing social impact. As we look to the future, if we hope to maximize our impact, we must adapt alongside our social entrepreneurs and nonprofit leaders. To meet the demands of this new marketplace, Open Road is scaling.
Open Road Alliance is pleased to announce a new fund, Open Road Ventures, which will disburse $50 million in one-time bridge and working capital loans to nonprofits and social enterprises over the next five years.
Open Road Ventures is our response to the three points laid out above. By committing to $50 million in loans over the next five years (in addition to our growing charitable grant portfolio) Open Road will be solving for immediate needs, enabling organizations to keep their work moving forward despite the unexpected. The loan fund also serves as evidence of the growing demand for more flexible and creative funding mechanisms in the social sector. We encourage other foundations and impact investors to join us in developing their own flexible funding mechanisms to better serve the needs of those working for impact.
Open Road exists to keep impact on track. Five years ago, this catchphrase served as the tagline for our initial grant portfolio, a shortcut to describe our unorthodox grant criteria. Today, it is our North Star and the litmus test for everything we do. Open Road Ventures is our latest – though not our last – instrument “Keeping Impact on Track.”
This article is the final in a four-part series sharing what Open Road Alliance has learned about risk management in philanthropy and how the organization has evolved over the past five years to better address the need for fast, flexible contingency funding in the sector. This series will include findings from Open Road’s research and practical guidance on best practices for managing risk in order to maximize impact in philanthropy.